Russian January Inflation Tops Forecasts to Reach 7.1%

By Olga Tanas -
Feb 5, 2013

Russian consumer prices rose more
than economists estimated in January, advancing at the fastest
rate in 15 months and bolstering the central bank’s case to
resist government calls for lower borrowing costs.

The inflation rate was 7.1 percent, jumping from 6.6
percent the previous month, the Federal Statistics Service in
Moscow said today in an e-mailed statement. The median estimate
of 21 economists in a Bloomberg survey was 6.9 percent. Prices
rose 1 percent from the previous month, topping estimates of a
0.8 percent advance.

Russia, the biggest emerging economy to raise interest
rates last year, is seeking to cap inflation at 5 percent to 6
percent in 2013. President Vladimir Putin and members of Prime
Minister Dmitry Medvedev’s government have said borrowing costs
should be lowered to boost an economy that grew last year at the
slowest pace since a 2009 recession.

“The January data may support the central bank in its
dispute with the government that it’s too soon to ease monetary
policy,” Alexander Morozov, chief economist for Russia at HSBC
Holdings Plc. (HSBA) in Moscow, said by phone today. “I expect the
central bank to lower interest rates only at the beginning of
the fourth quarter, when inflation drops within the target range
of 6 percent.”

Ruble Gains

The ruble is the third-best performer over the last three
months among more than 20 emerging-market currencies tracked by
Bloomberg, strengthening 5.4 percent against the dollar. It
gained 0.24 percent to 30.0150 a dollar as of 7:12 p.m. in
Moscow.

In the first half of the year, inflation is “very likely
to exceed the target range,” the central bank said in its
monetary-policy report for January, published today on its
website.

Food prices advanced 8.6 percent in January from a year
earlier, or by 7.2 percent excluding alcohol, the service said.
Alcohol prices advanced 16.4 percent compared with a year ago
after higher duties kicked in, according to the report. Food and
vegetable costs jumped 16.1 percent.

“Food inflation remains a problem,” Julia Tsepliaeva,
chief economist at the Russian unit of BNP Paribas SA, wrote in
an e-mailed note today. Government plans to increase grain sales
next week will have a “lagged and limited effect” on price
pressure, according to Tsepliaeva.

Main Concern

Inflation is the main concern for the majority of Russians
along with the poor state of housing and public utilities,
according to a poll published Jan. 31 by the state-run All-
Russian Center for the Study of Public Opinion.

Consumer-price growth slowed to a post-Soviet low of 3.6
percent in April and May of last year after the government
pushed back increases in utility tariffs by six months before
elections that returned Putin to the Kremlin for a third term.

Russia may be able to curb inflation to 3 percent to 4
percent by 2018, Finance Minister Anton Siluanov said yesterday.
Still, the economy needs “easier money” and the government is
locked in a “huge argument” with the central bank over
interest rates, according to First Deputy Prime Minister Igor Shuvalov.

‘Persuade Them’

“We’re trying to persuade them, always, that now they need
to reduce the rate,” Shuvalov said in a Jan. 18 interview.
“And they say, not yet. We think they could.”

The growth of borrowing costs “raises concerns,” Putin
said Jan. 31. December’s inflation rate was “very low,”
especially when compared with an average 12.75 percent in
2000-2010, he said Jan. 16.

The economy expanded 3.4 percent last year, compared with
4.3 percent in 2011, data released last week showed. The
government is targeting “steady economic growth” of 5 percent
or more a year. Gross domestic product will increase 3.6 percent
in 2013, the Economy Ministry predicts.

Central bank Chairman Sergey Ignatiev, whose third and
final term ends in June, said consumer-price growth may slow to
4 percent in the coming years if the government follows the so-
called budget rule, under which spending will be capped based on
long-term oil prices.

“Maybe not immediately, maybe with some time lag, but
interest rates will decrease with lower inflation,” Ignatiev
said Jan. 31.

After raising borrowing costs by a quarter-point in
September, the central bank has kept the refinancing rate
unchanged at 8.25 percent for four months. Bank Rossii is
scheduled to discuss monetary policy on Feb. 12, having removed
language calling interest rates adequate for “the nearest
future” from last month’s statement.

Risks of exceeding the inflation target range of 5 percent
to 6 percent this year and 4 percent to 5 percent for the next
two years “are currently estimated as moderate,” the central
bank said in its statement.